Last updated on May 15th, 2026 at 02:54 pm
What Are The Functions Of Inventory Management In The Supply Chain
In business, inventory management refers to the production, storage, and sales of both raw materials and finalised products. It is one of the most crucial elements of the supply chain. It ensures that items are delivered in the appropriate amount, at the appropriate time, and at the appropriate price. Thus, it ensures that goods are always accessible to distributors, merchants, and warehouses. When the functions of inventory management are correctly organized, your supply chain will run smoother.
Without it, you face the risk of making a long list of errors, such as:
· Incorrect shipments
· Bottlenecks
· Out-of-stocks
· Deterioration (when dealing with perishable stock items)
· Overstocks
· Incorrect pickings
Advantages Of Inventory Management
The two key advantages of inventory management are:
Ability to fulfill incoming/open orders
Increased earnings
The following are some of the other benefits of the functions of inventory management to accelerate your Chief Supply Chain and Operations processes:
Money Saving
By understanding stock trends, you can know how much and where you have a certain item in stock. This is one of the best ways to utilize that stock more effectively. As a result, you can maintain less inventory at each location (store, warehouse) and lower inventory expenses. Along with it, it reduces the quantity of unsold stock before it becomes outdated.
Strengthens Cash Flow
When the functions of inventory management are managed correctly, your money is spent on merchandise that sells. This assists you in keeping your business’s cash flow positive.
Customer Satisfaction
One aspect of building a loyal customer base is ensuring they receive the goods they want without long waiting times.
Various Types Of Inventory Management System
Businesses use various inventory management systems depending on their processes, scope, and demands. The three basic inventory management methods are manual, periodic, and perpetual.
The manual inventory management system is the least modern way to handle inventory operational processes. In contrast, perpetual systems are the most precise and up-to-date inventory management system.
The functions of inventory management involve handling complicated business decisions like:
Reordering
Pricing
Delivering goods in response to consumer demand
All of this is largely facilitated by tracking inventory (inputs/ingredients and outputs/products) at every level, including warehousing and distribution.
Ultimately, it reduces the likelihood of a shortage or excess inventory at any particular moment. Moreover, prompt product availability contributes to consumer delight and improved sales.
Manual inventory system
This inventory management system relies on the actual counting of products. Here, data documentation is done on paper or in a spreadsheet. It is used by small enterprises that have not switched to inventory management software solutions.
Periodic inventory system
In this type of system, the inventory is counted at the end of the accounting period instead of counting instantly after each sale and acquisition. It is a really straightforward technique that works well for smaller companies that sell fewer products.
Perpetual inventory system
This inventory management system is the most advanced and uses automated software to provide real-time data points.
It updates balances as soon as any stock:
Enters a facility
Is transferred
Sold
Utilized
Discarded
This is possible with the use of handheld devices that scan product barcodes or RFID tags.
The Functions Of Inventory Management
You must have a thorough understanding of each phase in the functions of inventory management process before creating your Supply Chain Management Strategies.
This is essential for preventing errors and selecting the best inventory management system for your company.
Deliveries Of Goods To Your Location
This is the moment when raw materials/components/finished goods for manufacturers/ customers enter your warehouse for the first time.
Inspection, Sorting, And Storage
These functions of inventory management are undertaken when inventory is evaluated, sorted, and placed in its proper stock area.
This is regardless of whether you use drop shipping, cross-docking, or a different warehouse management system.
Keep Track Of Inventory Levels
This reduces the possibility of errors using cycle counts, perpetual inventory software, or physical inventory counts.
Placement Of Orders
Customers can place orders in-store or on your website.
Approval Of Stock Orders
At this point, you can send the order to your supplier, or your POS system may automate it.
Locating Items From The Stock
By using the SKU number, the required items are located, selected from stock, and dispatched to the manufacturer or client.
Updating The Inventory Levels
By using a perpetual inventory system, you can automatically update inventory and convey it to the appropriate stakeholders.
Try drawing an inventory process map to help you better understand the functions of inventory management. Then, evaluate each workflow phase to reduce out-of-stock and extra inventory.
Final Thoughts
The functions of inventory management are critical if you want to compete and provide your consumers with desired experience, whether you’re a brick-and-mortar, online, or a multi-channel business.
It is essential to implement these strategies if you want to truly succeed.
Are you aspiring to learn more about this booming field? Then the logistic management course by Imarticus Learning is appropriate for you. It covers principles of operations and supply chain management in extensive detail.
The primary objective of our course is to enlighten you with the understanding, skills, and expertise you need to understand what is inventory management, and manage logistics and supply chain operations successfully.